N-30D: Initial annual and semi-annual reports mailed to investment company shareholders pursuant to Rule 30e-1 (other than those required to be submitted as part of Form NCSR.)
Published on March 11, 2002
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GLOBAL INCOME
FUND
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ANNUAL REPORT
DECEMBER 31, 2001
INDEPENDENT PUBLIC ACCOUNTANT AMERICAN STOCK
TAIT, WELLER & BAKER EXCHANGE SYMBOL:
GIF
11 HANOVER SQUARE
NEW YORK, NY 10005
1-800-937-5449
www.globalincomefund.net
AMERICAN STOCK
GLOBAL INCOME FUND EXCHANGE SYMBOL: GIF
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11 HANOVER SQUARE, NEW YORK, NY 10005
WWW.GLOBALINCOMEFUND.NET
January 25, 2002
Fellow Shareholders:
In submitting this Annual Report, we first want to express our deepest
sympathy for the families and friends of those who lost their lives in the
murderous attacks of September 11, 2001. We hope and pray that those responsible
are brought to justice and every effort is made to bring peace to a troubled
world.
REVIEW AND OUTLOOK
The primary investment objective of the Fund is to provide for its
shareholders a high level of income and, secondarily, capital appreciation. The
Fund pursues its investment objectives by investing primarily in a global
portfolio of investment grade fixed income securities. At year-end, the Fund had
approximately 78% of its total assets invested in fixed income securities with
an actual or deemed investment grade rating, approximately 12% below investment
grade, approximately 8.0% in stocks and the balance in money market securities.
At year-end approximately 77% of investments were in entities located in the
United States and the balance was spread over 7 countries and a supranational
organization.
The economy started to weaken in the first quarter of the year.
Household consumption grew at its lowest rate in years, business investment
dropped, and unemployment was on the rise. The economy was particularly
vulnerable at the time of the September 11 attacks and confidence in the markets
plummeted in September and brought the already slowing economy to a halt.
Seeking to turn the tide, the Federal Reserve has reduced its target interest
rate by 4.75 percentage points to end the year at 1.75%. These moves have
lowered short term interest rates to their lowest levels since the early 1960s.
Against this economic background, the Lehman Brothers Aggregate Bond
Index had a 2001 return of 8.42% and the J.P. Morgan Global Government Bond
Index had a negative return of 0.80%. Equity markets stumbled and then somewhat
recovered with the Dow Jones Industrial Average, the Standard & Poor's 500 Index
and the Nasdaq Composite Index declined 5.44%, 11.88% and 21.05%, respectively.
In a bond market environment that favored higher quality bonds, the high yield
market generally lagged behind the returns in the Treasury and investment grade
markets. We had upgraded the overall quality of our portfolio, although we
experienced losses in two investments (Global Crossings and the Republic of
Argentina), which had an impact on the portfolio's overall return in the second
half of 2001. Despite this difficult market environment for fixed income funds
seeking a high level of income, we are pleased to report the Fund had a 2001
market total return of 15.94% on a net asset value total return of 2.33%.
Going forward, we now feel that many of the market factors necessary
for economic gains are in place. Recent improvements in unemployment claims,
factory orders for non-military goods and measures of consumer confidence have
signaled a turnaround. However, many economists, and we agree, say that if the
U.S. economy does recover, that recovery will be relatively weak. While consumer
spending lately shows resiliency as people take advantage of large sales
discounts in the stores and 0% financing avail-
able on many durable goods, especially automobiles, many corporate balance
sheets will lack the strength to power the economy and increase corporate
spending enough to spark the economy. Although the Federal Reserve's interest
rate cuts may have stopped for now, we believe the Fed will be slow to raise
rates over the next six months and most likely throughout 2002. After the last
recession recovery at the beginning of the 1990s, the Federal Reserve waited a
year and a half before it started raising rates again. A slow recovery may also
allow both the stock and the bond markets to be somewhat protected from dramatic
sell-offs.
As we look to the future, the performance of the U.S. economy will be
the most important element for both the fixed income and the equity markets. The
signs of recovery are still preliminary and the timing uncertain. Although at
this writing the economy is displaying a mix of strength and weakness, we
believe a recovery will occur this year. This uncertainty in the markets should
provide opportunities for the Fund to purchase securities that will provide
attractive levels of current income and, secondarily, capital appreciation over
the coming year.
10% DIVIDEND DISTRIBUTION POLICY CONTINUED
The managed 10% dividend distribution policy adopted by the Fund's
Board of Directors in 1997 continues to be well received. The objective is to
provide shareholders with a relatively stable cash flow and reduce or eliminate
any market price discount to the Fund's net asset value per share. Payments are
made primarily from ordinary income and any capital gains, with the balance
representing return of capital. For the year ending December 31, 2001 actual
distributions were 10.02% of average net assets with approximately 59.28%
derived from net investment income and the balance from return of capital. We
continue to believe shares of the Fund are a sound value and attractive for
portfolios seeking total return from capital appreciation and income.
PURCHASE SHARES AT AN ATTRACTIVE DISCOUNT
The Fund's current net asset value per share is $5.47. With a recent
closing on the American Stock Exchange of $5.12 per share, we believe this
represents an important opportunity to purchase additional shares at an
attractive discount from their underlying value. The Fund's Dividend
Reinvestment Plan is a very effective way to also add to your holding because
quarterly dividend distributions are reinvested without charge at the lower of
net asset value per share or market price, which can contribute importantly to
growing your investment over time. Please call 1 800-937-5449 and an Investor
Service Representative will be happy to assist you. We appreciate your support
and look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Thomas B. Winmill /s/ Marion E. Morris
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Thomas B. Winmill Marion E. Morris
President Senior Vice President
Portfolio Manager
GLOBAL INCOME FUND, INC.
2
SCHEDULE OF PORTFOLIO INVESTMENTS - DECEMBER 31, 2001
GLOBAL INCOME FUND, INC. 3 See accompanying notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS - DECEMBER 31, 2001
(1) Par value stated in currency indicated; market value stated in U.S.
dollars.
(2) Purchased pursuant to Rule 144A exemption from Federal registration
requirements.
See accompanying notes to financial statements. 4 GLOBAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
ASSETS:
Investments at market value
(cost: $28,656,925) (note 1) ............................... $28,752,202
Interest receivable .......................................... 453,906
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Other assets ................................................. 5,322
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Total assets ........................................... 29,211,430
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LIABILITIES:
Accrued expenses ............................................. 84,523
Accrued management fees ...................................... 17,358
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Total liabilities ...................................... 101,881
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NET ASSETS: (applicable to 5,349,191
shares outstanding: 20,000,000 shares
of $.01 par value authorized) ................................ $29,109,549
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NET ASSET VALUE PER SHARE
($29,109,549 / 5,349,191 shares outstanding) ............... $5.44
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At December 31, 2001, net assets consisted of:
Paid-in capital .............................................. $36,410,959
Accumulated net realized loss on
investments, foreign
currencies and futures ..................................... (7,394,174)
Accumulated deficit in net investment
income ..................................................... (2,690)
Net unrealized appreciation on
investments and foreign currencies ......................... 95,454
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$29,109,549
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STATEMENT OF OPERATIONS
Year Ended December 31, 2001
INVESTMENT INCOME:
Interest ..................................................... $ 2,093,398
Dividends .................................................... 191,728
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Total investment income .................................... 2,285,126
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EXPENSES:
Investment management (note 3) ............................... 208,607
Custodian .................................................... 110,774
Professional (note 3) ........................................ 76,964
Directors .................................................... 44,493
Transfer agent ............................................... 29,363
Printing ..................................................... 27,995
Registration (note 3) ........................................ 10,414
Other ........................................................ 5,133
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Total operating expenses ................................... 513,743
Loan interest and fees (note 5) ............................ 2,659
Fee reductions (note 4) .................................... (3,627)
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Total expenses ............................................. 512,775
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Net investment income ................................... 1,772,351
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REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS, FOREIGN
CURRENCIES AND FUTURES:
Net realized gain on investments ............................. 231,233
Net realized loss from foreign currency
and futures transactions ................................... (64,476)
Unrealized depreciation on investments
and foreign currencies during the year ..................... (342,949)
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Net realized and unrealized loss
on investments and foreign
currencies ............................................. (176,192)
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Net increase in net assets
resulting from operations .............................. $ 1,596,159
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GLOBAL INCOME FUND, INC. 5 See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 2001 and 2000
See accompanying notes to financial statements. 6 GLOBAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Global Income Fund, Inc. is a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company, whose shares are listed on the American Stock
Exchange. The primary objective of the Fund is a high level of income and
secondarily, capital appreciation. The Fund seeks to achieve its investment
objectives by investing primarily in foreign and domestic fixed income
securities. The Fund is subject to the risk of price fluctuations of the
securities held in its portfolio which is generally a function of the underlying
credit ratings of an issuer, the duration and yield of its securities, and
general economic and interest rate conditions. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. With respect to security valuation,
securities traded on a national securities exchange or the Nasdaq National
Market System ("NMS") are valued at the last reported sales price on the day the
valuations are made. Such securities that are not traded on a particular day and
securities traded in the over-the-counter market that are not on NMS are valued
at the mean between the current bid and asked prices. Certain of the securities
in which the Fund invests are priced through pricing services which may utilize
a matrix pricing system which takes into consideration factors such as yields,
prices, maturities, call features and ratings on comparable securities. Bonds
may be valued according to prices quoted by a dealer in bonds which offers
pricing services. Debt obligations with remaining maturities of 60 days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts. Securities of foreign issuers denominated in foreign currencies are
translated into U.S. dollars at prevailing exchange rates. Forward contracts are
marked to market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When a contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. The Fund
could be exposed to risk if the counterparties are unable to meet the terms of
the contracts or if the value of the currency changes unfavorably. Investment
transactions are accounted for on the trade date (the date the order to buy or
sell is executed). Interest income is recorded on the accrual basis. Discounts
and premiums on securities purchased are amortized over the life of the
respective securities. Dividends and distributions to shareholders are recorded
on the ex-dividend date. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable investment income and net capital gains, if
any, after utilization of any capital loss carryforward, to its shareholders and
therefore no Federal income tax provision is required. At December 31, 2001, the
Fund had an unused capital loss carryforward of approximately $6,992,000 of
which $1,420,000 expires in 2004, $214,000 in 2006, $3,977,000 in 2007, and
$1,381,000 in 2008. Based on Federal income tax cost of $28,656,925, gross
unrealized appreciation and gross unrealized depreciation were $531,199 and
$435,922, respectively, at December 31, 2001. Distributions paid to shareholders
during the year ended December 31, 2000 differ from net investment income and
net gains (losses) from security, foreign currency, and futures transactions as
determined for financial reporting purposes. These distributions are shown under
"Distributions to Shareholders" in the Statements of Changes in Net Assets.
(3) The Fund retains CEF Advisers, Inc. as its Investment Manager. Under the
terms of the Investment Management Agreement, the Investment Manager receives a
management fee, payable monthly, based on the average weekly net assets of the
Fund at the annual rate of 7/10 of 1% of the first $250 million, 5/8 of 1% from
$250 million to $500 million, and 1/2 of 1% over $500 million. This fee is
calculated by determining the average of net assets on each Friday of a month
and applying the applicable rate to such average for the number of days in the
month. Certain officers and directors of the Fund are officers and directors of
the Investment Manager. The Fund reimbursed the Investment Manager $29,045 for
providing certain administrative and accounting services at cost for the year
ended December 31, 2001.
(4) The Fund has entered into an arrangement with its custodian and transfer
agent whereby interest earned on uninvested cash balances was used to offset a
portion of the Fund's expenses. During the year ended December 31, 2001, the
Fund's custodian and transfer agent fees were reduced by $1,564 and $2,063,
GLOBAL INCOME FUND, INC. 7
respectively under this arrangement. Purchases and sales of securities other
than short term notes aggregated $45,348,663 and $48,553,737, respectively, for
the year ended December 31, 2001. A forward currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. When the Fund purchases or sells foreign securities it customarily enters
into a forward currency contract to minimize foreign exchange risk between the
trade date and the settlement date of such transactions. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the terms
of their contracts. The Fund had no forward currency contracts outstanding at
December 31, 2001.
(5) The Fund may borrow through a committed bank line of credit. For the year
ended December 31, 2001, there was no there were no borrowings on the bank line
of credit. (6) The tax character of distributions paid to shareholders for the
years ended December 31, 2001 and 2000 was follows:
2001 2000
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Distributions paid from:
Ordinary income $1,939,108 $2,143,663
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Return of capital 1,050,851 797,060
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$2,989,959 $2,940,723
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FINANCIAL HIGHLIGHTS
* Per share income and operating expenses and net realized and unrealized gain
(loss) on investments have been computed using the average number of shares
outstanding. These computations had no effect on net asset value per share.
** Annualized.
(a) Effective February 7, 1997, the Fund converted from an open-end management
investment company to a closed-end manage- ment investment company. The Fund
has calculated total return on market value basis based on purchases and
sales of shares of the Fund at current market values and reinvestment of
dividends and distributions at prices obtained under the dividend
reinvestment plan. The calculation does not reflect brokerage commissions,
if any.
(b) Ratio after custodian credits was 1.72%, 2.66%, 2.24%**, 2.43% and 3.42% for
the years ended December 31, 2001, and 2000, the six months ended December
31, 1999 and the years ended June 30, 1999 and 1998, respectively.
8 GLOBAL INCOME FUND, INC.
RESULTS OF THE ANNUAL MEETING
The Fund's annual meeting of stockholders was held on October 30, 2001.
1. To elect the following directors to serve as follows:
Directors whose term of office continued after the meeting are Robert D.
Anderson, George B. Langa, Peter K. Werner, and Bassett S. Winmill.
2. To ratify the selection of Tait, Weller &Baker as the Fund's independent
public accountant.
The deadline for submitting stockholder proposals for inclusion in the Fund's
proxy statement and form of proxy for the Fund' next annual meeting is May 22,
2002, pursuant to Rule 14a-8(e)2 of the 1934 Act. The date after which notice of
a stockholder proposal submitted outside the processes of Rule 14a-8 under the
1934 Act is considered untimely is July 22, 2002, as established by the Fund's
By-Laws, as amended December 13, 2000.
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DIVIDEND REINVESTMENT PLAN
The Fund has adopted a Dividend Reinvestment Plan (the "Plan"). Under the Plan,
each dividend and capital gain distribution, if any, declared by the Fund on
outstanding shares will, unless elected otherwise by each shareholder by
notifying the Fund in writing at any time prior to the record date for a
particular dividend or distribution, be paid on the payment date fixed by the
Board of Directors or a committee thereof in additional shares. If the Market
Price (as defined below) per share is equal to or exceeds the net asset value
per share at the time shares are valued for the purpose of determining the
number of shares equivalent to the cash dividend or capital gain distribution
(the "Valuation Date"), participants will be issued additional shares equal to
the amount of such dividend divided by the Fund's net asset value per share. If
the Market Price per share is less than such net asset value on the Valuation
Date, participants will be issued additional shares equal to the amount of such
dividend divided by the Market Price. The Valuation Date is the dividend or
distribution payment date or, if that date is not an American Stock Exchange
trading day, the next trading day. For all purposes of the Plan: (a) the Market
Price of the shares on a particular date shall be the average closing market
price on the five trading days the shares traded ex-dividend on the Exchange
prior to such date or, if no sale occurred on any of these days, then the mean
between the closing bid and asked quotations for the shares on the Exchange on
such day, and (b) net asset value per share on a particular date shall be as
determined by or on behalf of the Fund.
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PRIVACY POLICY
Global Income Fund, Inc. recognizes the importance of protecting the personal
and financial information of its shareholders. We consider each shareholder's
personal information to be private and confidential. This describes the
practices followed by us to protect our shareholders' privacy. We may obtain
information about you from the following sources: (1) information we receive
from you on forms and other information you provide to us whether in writing, by
telephone, electronically or by any other means; (2) information regarding your
transactions with us, our corporate affiliates, or others. We do not sell
shareholder personal information to third parties. We will collect and use
shareholder personal information only to service shareholder accounts. This
information may be used by us in connection with providing services or financial
products requested by shareholders. We will not disclose shareholder personal
information to any nonaffiliated third party except as permitted by law. We take
steps to safeguard shareholder information. We restrict access to nonpublic
personal information about you to those employees and service providers who need
to know that information to provide products or services to you. With our
service providers we maintain physical, electronic, and procedural safeguards to
guard your nonpublic personal information. Even if you are no longer a
shareholder, our Privacy Policy will continue to apply to you. We reserve the
right to modify, remove or add portions of this Privacy Policy at any time.
GLOBAL INCOME FUND, INC. 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders of Global Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Global
Income Fund, Inc. including the schedule of portfolio investments as of December
31, 2001, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated thereon.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2001, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Global
Income Fund, Inc. as of December 31, 2001, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods indicated
thereon, in conformity with accounting principles generally accepted in the
United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 18, 2002
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OFFICERS AND DIRECTORS
DIRECTORS OFFICERS
BASSETT S. WINMILL THOMAS B. WINMILL, Esq.
Chairman President
ROBERT D. ANDERSON MARION E. MORRIS
Vice Chairman Senior Vice President
GEORGE B. LANGA* WILLIAM G. VOHRER
FREDERICK A. PARKER, JR.* Treasurer
PETER K. WERNER*
DOUGLAS WU* MONICA PELAEZ, Esq.
THOMAS B. WINMILL, ESQ. Vice President, Secretary
* Member, Audit Committee HEIDI KEATING
Vice President
10 GLOBAL INCOME FUND, INC.
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GLOBAL INCOME FUND
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11 HANOVER SQUARE
NEW YORK, NY 10005
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